Renewable energy

This Budget seeks to bring about innovations in the renewable energy sector, and in particular tries to engage rural and regional Australia in this. However, measures promoting more ‘traditional’ renewable energy have suffered. Renewable energy funding of almost $400 million over four years has been cut from these areas to pay for flood recovery and reconstruction.[1]

New and emerging renewable energy technologies

Delivering on its election commitments, the Government is establishing two new schemes to promote the advance of renewable energy technologies: the Emerging Renewables program and a Renewable Energy Venture Capital Fund, financed at $104.2 million over five years and $108.7 million over 14 years respectively. Both will be administered by the Australian Centre for Renewable Energy. The funding is being met from existing resources within the Department of Resources, Energy and Tourism (DRET), and specifically from funding announced in the 2010-11 Budget for the Renewable Energy Future Fund (REFF). [2]

Geothermal energy and related technologies are expected to be major beneficiaries of these initiatives. The geothermal industry will also enjoy a tax deduction for exploration activities after the Government announced a change to the definition of ‘exploration’.[3] From 1 July 2012, geothermal exploration activities will receive the same income tax treatment as already applies to the explorations of traditional hydrocarbon energy sources.[4] This measure was a recommendation of the Policy Transition Group and will cost the Government $10 million over two years (2013–14 and 2014–15).[5]

There is also an additional $1.4 million over three years for the design of the Connecting Renewables—Connecting to the Grid program.[6] This program was first funded in the Mid-Year Economic and Fiscal Outlook (MYEFO) 2010–11 as a $1 billion initiative over 10 years, also out of the REFF.[7] It will help to deliver renewable energy coming from remote and regional areas.

Renewable Energy Target scheme

The Minister for Climate Change and Energy Efficiency announced on 5 May 2011 a change to the Solar Credits component of the Renewable Energy Target (RET) scheme. The RET scheme is a market mechanism that relies on tradeable renewable energy certificates (RECs). Under the Solar Credits component of the RET scheme, the number of RECs received from the first 1.5 kilowatts of small-scale solar installations is effectively multiplied. These RECs from small-scale solar installations are then either sold through the Government’s Clearing House at a fixed $40 per certificate or on secondary markets. So, by means of ‘multiplied’ RECs, households, businesses and community groups receive an augmented rebate for their rooftop solar systems. On 5 may 2011, the Minister announced that the Solar Credits multiplier will be reduced to three instead of four from 1 July 2011, and the Solar Credits scheme phased out completely by 2013. [8] This is a second announcement of its kind. Already on 1 December 2010, the Minister announced that the Solar Credits would be reduced and phased-out a year earlier than planned.[9] In just six months the scheme has been reduced twice and shortened by two years.

To the consumer these announcements will result in a simple reduction in the rebate for installing a household solar system. For the solar sector, however, and for the renewable sector as a whole, these changes are significant and necessary. They are aimed at preventing an oversupply of RECs weakening the market, and therefore the entire scheme. An oversupply of small-scale RECs has been threatening to flood the market and lead to a bottleneck in the Clearing House, thus favouring spot trading where REC prices are lower and more volatile. [10]

In this Budget the Government has also announced an increase in the registration fee for small-scale RECs from 8 to 47 cents. This measure will increase revenue by $14.1 million over four years, offsetting the $11.9 million cutback in revenue from the reduction of the Solar Credits multiplier. The Government is providing an additional $58.8 million over five years to the Office of the Renewable Energy Regulator to implement the amendments, for technology upgrades, and for ‘the introduction of an inspection regime for solar panel installations and increased compliance powers.’[11]

Capital Gains Tax

For the 2007-08 income year and beyond, capital gains tax will not be due on any gains or losses generated by taking advantage of a State or Federal renewable resources or environmental sustainability incentive scheme, such as the RET scheme. The net effect on revenue from this change is minimal. [12]

Solar

The Solar Flagships program

A combined total of $370 million (from two redirections of funding) has been cut from the Solar Flagships program over the forward estimates. Of this, $150 million has gone towards the recovery and reconstruction of flood-affected areas.[13] Initially, the Government had planned to cut $250 million from the Solar Flagship program’s budget to help fund the flood levy, ‘with $190 million of this to be re-phased to beyond the forward estimates.’ [14] After negotiations with the Greens, the Government agreed to restore $100 million of that to the program.[15]

This reduced funding to the solar industry has been widely criticised.[16] In recent years, growth of ‘big solar’ in Australia has been stunted by the uptake of smaller installations which have enjoyed more favourable policy settings. Yet for a country as rich in solar radiation as Australia, large-scale solar is a cost-effective and efficient way to generate power from renewable energy and reduce greenhouse gas emissions.[17] Of 52 proposed solar projects, only two will receive funding under the Solar Flagships’ first round, and now there is uncertainty surrounding a second round. [18]

National Solar Schools Program

The lifespan of the National Solar Schools Program (NSSP) has been cut short by two years, so it is now due to close at the end of the 2012–13 financial year. The program has also had its funding reduced by $156.4 million. Over the next two years, a total funding of $498 million will be disbursed in $50,000 grants, with priority given to remote or low socioeconomic areas.[19]

Solar Cities

Additional funding of $13.7 million over two years is being provided to the Solar Cities program which trials innovative energy technologies and concepts in Adelaide, Alice Springs, Blacktown, Central Victoria, Moreland, Perth and Townsville.[20]

United States—Australia Solar Research Collaboration initiative

A new United States—Australia Solar Research Collaboration initiative is being established at a cost of $50 million over four years drawn from the REFF. The initiative is designed to ‘support joint projects with the United States designed to reduce the cost of solar energy technologies.’[21]

Biofuels

A new Australian Biofuels Research Institute (ABRI) funded initially at $20 million over four years is being established by the DRET to further the development of next generation biofuels.[22] This funding includes $5 million towards a biofuels development project at James Cook University.[23]

Added to this, the Assistant Treasurer announced in January 2011, that the expected changes to the taxation of alternative fuels will be delayed until December 2011. [24] This will cost the Government $26 million over the forward estimates period, but alleviate pressure on the industry to prepare for the new tax regime.[25] On 12 May 2011, the Government introduced enabling legislation to Parliament.